India Ratings maintains negative outlook on infrastructure

The agency said a number of projects are likely to default on their loan obligations in 2013 and alternatively lenders might be compelled to approve forced debt-restructuring packages. Photo: Mint

Mumbai: India Ratings and Research Pvt. Ltd, a part of the Fitch Group, said on Friday that it maintained an overall negative outlook for Indian infrastructure projects for 2013, given the continued weak credit profiles of companies.

“However, some sub-sectors have a split outlook. The outlook for power projects remains negative while certain pockets in the transportation sector have a stable outlook,” India Ratings said in a statement.

The agency said recent policy initiatives announced by the government were encouraging and had kindled optimism among participants. However, the process of addressing fundamental risks through concrete and sustained on-the-ground actions to repair damaged credit quality is likely to be protracted, it added.

A number of projects are likely to default on their loan obligations in 2013 and alternatively lenders might be compelled to approve forced debt-restructuring packages, it said.

“This is in view of their weak financial structures and multiple risks including construction delays, plant stabilisation issues and fuel supply constraints in the power sector and traffic under-performance in the transportation sector. Reduced sponsor capacity to extend support would also likely contribute to this phenomenon,” India Ratings said.

It maintained a negative outlook on power projects.

For the transportation sector, construction delays and traffic underperformance will remain the two most important rating factors for toll road projects in 2013.

“Many projects exhibit stable characteristics with drastic rating downgrades averted only on account of expectation of continued sponsor support to fund cost overruns and/or bridge marginal revenue shortfalls in case of operating assets. The ratings of availability-based (annuity) road projects will be stable in 2013 because of low revenue risks and simple maintenance requirements considering the operator-cum-sponsor’s track record in the sector,” it said.

For airports, the regulatory clarity that has emerged from the recent orders on project costs and the levy of airport development fees has provided relief, the firm said.

“However, global economic uncertainties and slowing growth in India coupled with rising air fares have led to negative growth in domestic passenger enplanements; international passenger traffic has grown at a slower rate. The agency views this fall in passenger enplanements as cyclical and believes that it is unlikely that long-term forecasts would not be achieved, given the strong growth recorded over the last six-seven years,” it added.